Section 194B Of The Income Tax Act: Provisions And TDS
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28 March 2022Section 194B stipulates what taxes are applicable on winnings from lotteries, crossword puzzles, card games, quiz shows, online gaming, or dance competitions. If winnings from such games exceed Rs. 10,000, the person making payments must deduct tax at applicable rates. However, below this limit, no tax is deductible.
The following sections will describe the provisions of Section 194B of the Income Tax Act.
Table of contents
Provisions of Section 194B of the Income Tax Act
As per Section 194B, a person responsible for paying winnings of lotteries, crossword puzzles and other similar games must deduct income tax before making the payment. This is applicable only when the winnings exceed Rs. 10,000.
Currently, a flat TDS (Tax Deducted at Source) of 30% is applicable on winnings over this limit. The total income tax charged becomes 31.2% after factoring in surcharge and cess. The company or organisation distributing prize money is responsible for deducting TDS.
There can be cases where the winnings are fully in kind or partly in kind and cash. If the cash balance is not sufficient to deduct TDS, the payer is responsible for withholding winnings till the payee pays him the equivalent amount in cash. Alternatively, the payee can pay applicable TDS and submit proof of payment to the payer.
Applicability of Section 194B of the Income Tax Act
Persons paying winnings of lotteries, TV shows, and online games must collect the TDS amount at the time of payment and deposit it to the government. Given is a list of sources for which a flat tax rate of 31.2% is applicable:
- Lottery (online and offline)
- Crossword puzzles
- Race betting
- Card games
- Gambling (online and offline)
- TV shows, including game shows, quiz shows, singing competitions etc.
- Fantasy sports
If you have received a gift in kind, such as a flat or a car, you have to pay a 31.2% TDS before taking possession of the gift. However, in some cases, a company distributing such gifts may choose to take the TDS liability.
Also Read: Section 80TTB Of Income Tax Act
Calculating TDS Deduction u/s 194B with Example
Income from game shows and lotteries is counted separately from the rest of your income for taxation purposes. Winnings from such sources fall under the head ‘Income from other sources.
Let us take the example of Mr. Yadav, who won Rs. 4,00,000 from a game show. His taxable income from salary is Rs. 7,00,000 after factoring in all tax deductions.
TDS on his winnings will be Rs. 1,24,800 (31.2% of Rs. 4,00,000) while tax liability on the rest of his earnings will be as per the applicable tax slab rates.
Things to Note about TDS u/s 194B
- The full 31.2% TDS is applicable regardless of a taxpayer’s tax bracket.
- No income tax deductions can be claimed to reduce winnings from lottery or crossword puzzles.
- When you get a prize in both cash and kind, TDS is deducted from the cash winnings.
- If you receive the prize money in instalments, a TDS deduction will take place when the payer pays such instalments.
- Winnings from online games are also included in this section.
- Participants and players in these games will need to provide their PAN and bank account details to the company holding such events.
- You cannot claim refunds against TDS payment u/s 19B.
Also Read: Section 80GGC Of Income Tax Act
Final Word
Section 194B of the Income Tax Act stipulates that any winnings above Rs. 10,000 from sources discussed above are subject to 30% TDS. After cess and surcharge, the effective rate becomes 31.2%. In case such earnings are not in cash, you will have to pay the TDS before you can receive your winnings.
Frequently Asked Questions
Ans: While Section 194B deals with winnings from lotteries, crossword puzzles, card games, etc., Section 194BB deals only with winnings from a horse race. From 2020, flat 30% TDS plus surcharges are applicable on winnings above Rs. 10,000.
Ans: Winnings from a lottery have a flat 31.2% TDS applicable, including surcharge and cess under Section 194B. So, winnings of Rs. 1 crore will have Rs. 31.2 lakh TDS applicable u/s 194B (31.2% of Rs. 1,00,00,000).
Ans: No, the TDS paid for winnings from lotteries and game shows are non-refundable. Usually, taxpayers can claim a refund if the TDS deduction is more than their tax liability in an assessment year. That said, for lottery winnings, you cannot claim any refund.
Ans: No, if you have paid any bonus to commission to lottery agents or sellers of lottery tickets, you do not have to pay TDS on it. Taxes deducted u/s 19B will apply after deduction of such bonus and commission from your winnings.
Ans: For winnings in kind or gifts, you have to pay the applicable TDS before receiving such presents. If you win a car worth Rs. 10 lakh, you have to pay Rs. 3,12,000 (31.2% of Rs. 10,00,000) out of your own pocket.
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